Post-Dismissal Agreements in Spain: When Are They Valid and What Risks Do Employers Face?

An agreement signed immediately after a dismissal is not shielded simply because it has been signed. Its validity depends on the worker having given real, free and informed consent. This is the message of the judgment of the High Court of Justice of the Balearic Islands (TSJ Illes Balears) of 7 February 2025, which declared invalid a settlement agreement signed after a disciplinary dismissal, finding a defect in the worker’s consent.

In this article we analyse what the judgment says, when a settlement agreement reached after a dismissal can be challenged, and what steps employers should take to negotiate with legal certainty.

Can an employer reach an agreement with a worker after a dismissal?

Yes. Spanish Labour Law contains no general mechanism for ending an open-ended employment contract simply by agreement between the parties: termination must fit within one of the grounds provided by law. However, once a dismissal has taken place, the parties can agree a solution to avoid court proceedings.

The logic is straightforward. The employer avoids litigation and knows the cost of the termination in advance. The worker receives a fixed sum and avoids the uncertainty, length and cost of proceedings. These agreements usually include a mutual waiver of claims and a commitment not to bring further claims over the items covered by the settlement.

But being able to settle is one thing; it is quite another for every agreement signed immediately after a dismissal to be necessarily valid. The intention to agree must be genuine and formed with sufficient understanding of what is being accepted.

The case analysed by the TSJ Illes Balears

The facts are particularly telling:

• The worker had been with the company for more than 18 years when she received a 16-page disciplinary dismissal letter.
• The letter was delivered in a meeting room, in the presence of the company’s labour manager and the store manager. She had roughly 10 to 20 minutes to read it.
• Immediately afterwards, the company proposed an agreement. It offered €10,000, which she rejected, and €15,000 was ultimately accepted.
• Her expected compensation if the dismissal were declared unfair exceeded €52,000.
• She had no legal advice and, according to the judgment, was at no point offered the possibility of obtaining it.
• The same day, the procedure before the TAMIB (the Balearic Islands arbitration and mediation tribunal) was started, initially presented as necessary for tax purposes. The worker later declined to ratify the agreement and challenged its validity.

Why did the Court declare the agreement invalid?

The decisive factor was not that the worker accepted less than she might have been entitled to. Negotiating below a maximum expectation does not, on its own, invalidate an agreement.

The Court assessed the overall circumstances in which the negotiation took place:

1. The moment immediately following the dismissal.
2. The worker’s emotional state.
3. The absence of legal advice.
4. The information gap between the parties.
5. The significant difference between the agreed sum and the expected compensation.
   

The Court found a situation of manifest inequality, also stressing that the company had specific experience in this type of process. It found fraud (dolo) as a defect of consent, considering that these circumstances caused a decisive error in the worker’s will. The analysis therefore focuses on how the parties’ will was formed, rather than on the signed document itself.

Is it enough for the agreement to state that the worker understood it?

No. The agreement contained express statements that the worker had read and understood its terms and had the opportunity to take advice. The Court did not consider these sufficient.

Consent can be defective even where a formally signed document exists. This leads to a conclusion of great practical importance: the wording of the agreement cannot replace the reality of the negotiation process.

Must the worker have a lawyer?

There is no general rule that every post-dismissal settlement requires a lawyer’s involvement to be valid. The Court itself recalls an earlier ruling of 16 January 2025, concerning a dismissal by the same employer, in which it upheld the validity of an agreement reached in different circumstances.

What matters is whether the signatory has a real opportunity to understand and assess what they are accepting, and whether the circumstances allow their consent to be regarded as free and informed.

Does it matter if the agreed compensation is lower than the statutory amount?

Not on its own. The parties may agree amounts above or below their expectations, because a settlement is intended to remove the uncertainty of litigation. In this case, the €15,000 agreed represented just over 20% of the amount expected if the dismissal were declared unfair.

However, when a significant financial gap is combined with lack of advice, information asymmetry, emotional distress and a negotiation immediately after the dismissal, it may be a relevant factor in finding defective consent.

Does conciliation before the administrative body guarantee the agreement’s validity?

Not automatically. Ratification before the conciliation service provides an additional safeguard as to the existence and content of the agreement, but it does not eliminate every possible challenge to how consent was formed.

In the case analysed, the private agreement provided for an appearance before the TAMIB and linked it to certain tax consequences. The worker subsequently withdrew her conciliation request.

How to negotiate a post-dismissal agreement with legal certainty

For employers that use internal protocols to negotiate immediately after communicating a dismissal, the following points are worth bearing in mind:

1. Do not rely solely on a ready-made template. Process efficiency is no substitute for assessing each negotiation.
2. Ensure a genuine opportunity to understand. The worker must be able to grasp the scope of the agreement and weigh its consequences.
3. Avoid urgency, pressure and information asymmetries. These are the circumstances that may later call the freedom of consent into question.
4. Keep the paperwork coherent. What is negotiated, what is documented and how the agreement is performed should match.
5. Consider administrative conciliation as an additional safeguard, without treating it as infallible.

Legal certainty is not obtained merely through a clause waiving claims.

A warning for international employers

Settlement agreements and exit packages commonly used in other jurisdictions cannot simply be transplanted into the Spanish employment system. The way an employment relationship is terminated, the effects of dismissal and the conciliation mechanisms all follow their own rules.

International companies should adapt their protocols to Spanish legal reality before using them systematically. An International Employment & Global Mobility strategy tailored to the specifics of the Spanish employment framework helps avoid contingencies.

Core legal takeaway

The judgment does not mean that agreements reached after a dismissal are no longer valid, nor that the absence of a lawyer automatically renders a settlement void. What it shows is that the validity of the agreement also depends on the circumstances in which consent is formed.

Post-dismissal agreements remain a useful tool: they reduce uncertainty, avoid litigation and allow the employment relationship to be closed through a negotiated solution. But where there is significant inequality, lack of information or advice, emotional distress and a substantial financial gap, the agreement is exposed to later judicial challenge.

A good agreement is not just one that is well drafted, but one reached through a legally sound negotiation process.

At Suárez de Vivero we advise national and international companies on dismissals, settlement agreements, negotiation of terminations, employment relations and the prevention of risks arising from the termination of contracts.

Frequently asked questions about post-dismissal agreements